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Weekly Gold and Silver Market Recap for May 25, 2012

Concerns out of the Euro zone continued to pull down the euro and strengthen the American dollar this week, thus pulling down prices. Gold in particular has remained relatively fluid within a certain price range of $1,530 to $1,590. However a key price indicator in the short term continues to be $1,600 an ounce. However, euro pressure continues to be in the driver’s seat for prices. An unidentified international dealer said, “If we break above $1,600 and even go higher to confirm the bull trend, we will see more buying.” Gold’s price drop has been well documented during the past few weeks. Many factors have led to the shift in price. However, in the view of many investors, this is an opportunity, based on a closer look at the numbers. CNBC contributor Dennis Gartman said, “The public is massively bearish, and that tells me it’s time to be bullish.” He added, “Most people don’t think Gold and stocks can go higher together, but I expect to see them trade dramatically higher over the course of the next several months. The trend is now higher.” Prices of Precious Metals were boosted by news of purchases from the biggest of spenders. Central banks in Turkey, Ukraine, Mexico, and Kazakhstan increased their Gold holdings in April, according to the International Monetary Fund. Commerzbank AG said, “We regard the central banks as a stabilizing element on the Gold market and anticipate increasing buying of Gold.” Lachlan Shaw of Commonwealth Bank of Australia said that early signs of an American recovery, a slowdown in Chinese growth, question marks over United States monetary policy and a sovereign debt crisis brewing in Europe are all keeping the market in a wait and see mode. “Any of these four catalysts can drive prices and investment demand,” he said.

U.S Slow but Steady?:

The United States might experience slower economic growth than previously expected with the end of extended benefits for the unemployed. This might influence some job seekers to accept jobs they otherwise would prefer not to, or give up searching for a job and drop out of the labor force. Andrew Tilton at Goldman Sachs Group Inc. is optimistic about the end of the extended benefits program. He said, “There has been an improvement in the availability of jobs. In a better labor market, people losing their benefits would be more likely to look and to find a job, and less likely to simply drop out. However, consumer sentiment in the United States rose to its highest point in more than four years in May. Optimism in the air as a healthier economy is beginning to develop. Richard Curtin, head of the University of Michigan’s consumer survey, reflected on how long the consumer sentiment will remain positive. He said, “The most likely prospect is that job growth resumes at a modest pace and that confidence remains largely unchanged until after the November election and decisions about tax policy are made.” Despite the upheaval in Europe, the United States’ economy continues to push forward. There is concern the debt problems in Europe and China could affect American factory data soon, with the Purchasing Managers Index slowing from 56.0 in April to 53.9 this month. Paul Edelstein said, “We are growing at moderate pace of two to two-and-a-quarter percent, but we have some headwinds that are starting to assert themselves, particularly coming from Europe.”

Fracturing Euro?:

A final election in June will determine whether Greece will stay with the euro zone. If Greece leaves, it would then initiate its own currency and would have to start paying off an estimated $618 billion in debt. The issues surrounding Greece do have some effect on the United States and should not be taken lightly. There are a few issues in particular including American banks’ susceptibility to euro zone debt. The weakening power of the euro as a currency could mean that American goods would also become more expensive and less attractive to consumers in other nations. There is also a global effect that could be felt by other global powers such as China. Economists have estimated that a Greek exit from the euro zone could affect the United States to the tune of one-tenth to one-half of a percentage point in gross domestic product growth. Reuters recently lined out three possibilities, and the ramifications of each: The euro zone stumbles along, Greece leaves, or a messy situation in which Greece leaves and damage spreads. Some analysts suggest that once the smoke clears in the euro zone, Gold prices could start moving back up. Marcus Grubb, managing director of investment at the World Gold Council, shared his thoughts on future Gold prices, saying, “Gold, used an alternative to the U.S. dollar by investors in search of safety, could see a move higher once markets have greater clarity on a resolution to the Greek debt crisis. As we’ve seen in previous times in this crisis, like in 2008, you typically get a shift into Gold once it becomes clear what the scenario is going to look like. At the moment we still don’t know what the scenario will look like. On the other side, investors have been selling Gold as they’ve raised cash weightings, moved into the dollar, invested in Treasuries. They’ve sold Gold in order to repair damage in their portfolios.”

Asia slows:

News from the World Bank could be a negative sign for the Asian region as a whole. Reports show that growth in the region has slowed from 10 percent in 2010 to 7.6 percent this year. The main culprit is China, where the slowdown has had the largest effect. However, the reported growth rates are much stronger than the growth rate in the United States, where the economy grew only 1.7 percent last year. Weakness in China’s economy and continued struggles in the euro zone appear to be forcing the Chinese government’s hand, as economists and strategists are predicting aggressive stimulus in that country. Dariusz Kowalczyk of Credit Agricole said, “The focus of the stimulus is likely to be on the fiscal side … because this is the fastest way to boost aggregate demand.” Economic stimulus around the world has been positive for Gold and Silver prices in the past.

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